Series Limited Liability Company (LLC)
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Angela Walter, Texas Attorney - If free to message me if you have any legal questions!
What is a series LLC?
Historically, members had to file, manage, record, and report each LLC separately which meant more paperwork, more cataloging, more expense, and more reporting. That process created more unnecessary work and several issues for not only the members of the LLC but also for the states' regulatory agencies. Some states have resolved this issue by enacting the series LLC. When done properly, a series LLC gives members protection from personal liabilities arising from multiple properties or operations without having the extra expenses of multiple LLCs.
Series LLC also known as master LLC provides liability protection across multiple LLC entities. Business owners and investors ("Members") create LLCs to protect their personal assets from legal liability. Members can add additional protection by forming series LLCs to hold each real property or business entity.
A series LLC is a designated "series" or "child" LLCs from the original LLC aka parent LLC. Each child can hold a specific property or properties, investments, assets, borrow money, or have a specific business purpose. In other words, each series can have its separate rights, powers, duties for specific assets or liabilities and can have a separate business purpose. Liabilities, debts, and obligations are only held against each child LLC and not against the parent LLC or other child(ren) LLCs. Each designated LLC has its own governing documents establishing its members, managers, and membership interests. It can also file lawsuits, be sued separately from the parent LLC, enter into contracts, hold title and secure interest in assets.
According to the Texas Business Commerce Code (TBCC) Section 1.201(b)(27), Legislators defined Texas series LLC as a legal "person." Under the Texas Uniform Commerce Code (TUCC) Section 9.102(3) a debtor is a person obligated on an account, chattel paper, or general intangible. This new law allows series LLCs to acquire assets through debt.
Series LLC are commonly used for business ventures, multiple investments or rental properties, or businesses that operate multiple channels of revenues. One of the benefits of a series setup is that Members can avoid filing separate tax returns for each series.
How does someone form a Texas series LLC?
According to Texas Business Organizations Code (TBOC) Section 101.602(a)(1)-(2), specific languages must be included in the certificate of formation, operating agreement, and maintain separate books and records for each series. In order to receive series LLC benefits, the series must be filed with the Texas Secretary of State, have a unique name from its siblings and parent LLC, conduct business, and be in compliance with the Texas Business Commerce Code and Texas Business Organizations Code.
There are three types of series LLC: (i) registered LLC, (ii) protected LLC, and (iii) series LLC that doesn't fall into registered or protected LLC class.
The minimum requirements to get the benefits of a series LLC is under TBOC Section 101.602(a)(1)-(2) which states that the series LLC must be included in the certificate of formation and company agreement, and the company must maintain separate records for the assets of each series. See TBOC section 101.601 through 101.621. Generally, under the certificate of formation, under the supplemental text section of the form, you add the series information.
Protected series requires that the LLC certificate of formation must provide notice of the series structure and the LLC agreement must permit the formation of different series. The series LLC must be properly recorded and maintain accounts for separate assets and liabilities for each series. Essentially, to file for a protected series, you must file an assumed name certificate in compliance with Chapter 71 of TBOC.
Registered series requirements are the same as protected service with additional documentation that a certificate of registered series is filed with the Texas Secretary of State by the parent LLC. When done properly, this is particularly beneficial when a third party vendor or purchaser of the company requires a certificate of status which shows the registered series in use and in good standing with the State. Additionally, registered series can file other documents with the Texas Secretary of State in relation to that series and provide certified copies to third party vendors or purchasers.
To form a name for a registered series, it must state the name of the parent company, followed by R.S or RS, then name of the series. For instance, if the parent is Texas Real Estate Group LLC, the following are acceptable: 1. Texas Real Estate Group LLC – RS Harvest Blue Houston or 2. Harvest Blue Houston, a registered series of Texas Real Estate Group LLC.
Texas is one of the few states that offer series LLC. Not all states will recognize Texas series LLC, however, Texas is unique in that it will allow you to register out of state series LLCs also known as foreign series LLC.
The laws of a series LLC are ever changing and ever growing. It is a relatively new law and solution provided by some states. Although this article provides some basic information on the series LLC, we always recommend that you do additional research through credible sources and keep up with the law. We will always make good faith efforts to continue to update our articles and resources.
Angela Walter, Texas Attorney - If free to message me if you have any legal questions!
